BUDGET 2017-18 – Expectations – Power Sector

BUDGET 2017-18 – Expectations – Power Sector

Nand Kishore (Tax Partner) & Rahul Arora (Partner)

The power sector plays an immeasurably crucial role in the sustainable and energy-secure growth story of any country. Aggressive leveraging of the sector to its full potential is a lucrative proposal for a diverse segment of stakeholders in India – ranging from rural households to renewable-energy start-up ventures.

Yet, while several financial budgets have come and gone since the year 1991 when north-eastern and eastern grids were interconnected (thus marking a significant footprint in the distribution of power in India) – till date, the full potential of the sector remains unexploited. The transmission infrastructure in the country remains archaic; the distribution remains inefficient; and the cost of energy delivered to the consumers continues to soar. At the same time, from a microscopic perspective, the developments on the transmission and distribution forefronts in the year 2016, as have been dealt with in detail subsequently, cannot be discounted.

As the nation stands at the brink of the financial budget for the year 2017-18 being unveiled, for those keen about the future of power in India, it becomes crucial to know how the last budget fared and how the upcoming budget might pan out.

The Promises Made & Delivered

Policy proposals

In his Budget speech, the FM expressed the Government’s commitment to achieve 100 per cent village electrification by May 1, 2018 and towards this mission a sum of `8,500 crores were allocated for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes.

Another initiative was with regard to nuclear power generation for which a budgetary allocation of ` 3,000 crores per annum was allotted and it was announced that the Government is drawing a comprehensive plan over 15-20 years to increase investment in this sector.

Further to augment infrastructure spending (including power sector), it was announced, that the Government would permit mobilization of additional finances to the extent of `31,300 crores by NHAI, PFC, REC, IREDA, NABARD through raising bonds during 2016-17 etc.

On the fiscal front, the tax holiday provided under Section 80IA applicable to power sector was extended till March 31, 2107. Additional depreciation of 20 per cent was provided on actual cost of new plant and machinery acquired by transmission companies. Further, ‘Clean Environment Cess’ on coal, lignite and peat was increased from ` 300 per tonne to ` 400 per tonne in an effort to foster the power sector’s transition towards greater reliance on renewable sources of energy1. In the wind and solar power sectors, exemption from basic customs duty was withdrawn on certain equipment used for the manufacturing of solar cells/modules/panels to discourage import and encourage domestic manufacturing of these goods.

Post Budget 2016-17 – Implementation & Challenges

During 2016-17, a total 3575 MW capacity was added till the end of October, boosting the cumulative capacity addition to 46,327 MW2. This included the largest ever wind and solar power capacity additions made yet.3 while the capacity addition on the transmission line forefront was lesser than the yester-years; a record of approx. 68,000 MVA substation capacities was added.

On rural electrification front, approximately 12 thousand villages have been electrified and another (roughly) 6000 villages still remaining. Thus, 67 per cent of the targeted rural households have been successfully electrified thereby paving way of achieving the target of 100 per cent village electrification within the deadline set in the Budget.

Notably, the financial outlay for the MNRE for the year 2016-17 was scaled up from FY 2015-16’s figure of approx. `600 cr. to approx. ` 5000 cr.4 As per the Minister of Coal and Power, Shri Piyush Goyal, it is estimated that approx. `24,000 worth of cess on account of levy of ‘Clean Environment Cess’ would be recovered by the Government by the end of the year 2016 (which, coupled with the fact that the supply-side costs of wind and solar power projects have decreased, points to the fact that the objectives for which cess was levied have been significantly achieved). Thus, it is evident that India is making strides in the renewable energy domain.

As of December 2016, the total nuclear power generation capacity stands at a disappointing 6780 MW, roughly only about 1000 MW more than what it was at the beginning of the year 2015.

On the fiscal side, one of the major disappointments is that electricity has been kept out of GST thereby impeding the flow of credit across the supply chain. Though tax holiday under Section 80IA was extended in respect of projects commencing production till March 31, 2017, however, these projects are not exemption from MAT of 18.5 per cent resulting in cash flow and thus effectively nullifying the tax holiday.